US CPI - Will the weaker USD finally bring us a higher inflation reading?

Looking ahead to the US data releases this afternoon, there are some common themes to pick on, with the CPI rate set to rise on the boost in gasoline prices.  Shortages and disruption in agricultural products will also lead to upward pressure on price but will be 'factored out' to a certain degree.  For retail sales, the pick up in auto sales post-hurricane season is expected show up strongly in these figures, giving GDP Q3 some much-needed support given the detrimental weather impact on activity earlier in the quarter.  All this points to a good afternoon for the USD on the face of it, but therein lies the drag factor, so any miss on the data points could have a more volatile effect to the downside.  That said, with so many of the Fed members focused heavily on inflation, a move through 2.0% in the headline rate will be an interesting dynamic given the rhetoric from the likes of Kashkari and Bullard and to a lesser degree Kaplan.  A Dec rate hike is largely priced in at present, and if normalisation is as strongly intended as Fed chair Yellen makes out, then this is the time to underline it - but a softer USD helps their cause and the market could be playing right into their hands - the conspiracy mongers and cynics will point to downbeat comments of late pushing for this in any case.

Looking at the price action on the 4HR chart, you can see the price has dropped off since we touched the 94.25 area, We are in the middle of the main value area of this consolidation, but the CPI figure will surely bring us some clarity on the price direction. We have marked the main support and resistance areas in the chart but risks look to be tilted to the upside as if there is a miss the consolidation low seems too far away to be tested. One key thing to remember from a price perspective is that this reading is for September and you can see the USD was relatively weak during that period, having said that, this is reflected in the estimate but it is something to keep in mind. 

CPI

 

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